Friday, September 30, 2011

Unlock The Lending Vault

 Unlock The Lending Vault Obtaining financing to start or expand your business is one of the toughest and most daunting tasks any business owner will face. You see the promos for various loan programs or even private sources with venture capital or hedge fund money available and it all sounds great, but when you get nose-to-nose with a banker it's another story. Many lending officers feel that they're lending you their own money instead of the bank's money.

The Problems We Face
After almost three years of recession and a virtual freeze on the credit market, the current economic situation remains quite challenging. Many banks are still not financially healthy, and are not able to do as much lending as they might like. Regulators require them to have higher levels of capital and a higher loan-loss reserve. Even if the bank is healthy, their lending standards are definitely higher and tighter than in the past. Banks are really dubious of newer businesses with a short history because almost 80% of businesses that fail do so within their first three years.
Another problem to overcome is that the decision-making process may have been moved off-site from your local banker due to all the mergers and acquisitions in the banking industry recently. Add all of this up, and you had better be prepared to electrify and amaze the banker.
Inside Tips to Open The Vault
Although the loan process can be frustrating, you can easily maximize your chances of obtaining a loan by knowing what lenders are looking for. Here are some inside tips for preparing your application and securing that loan.
1. Find The Right Source - Business owners mistakenly think all banks are the same when it comes to getting a loan. Some specialize in loans for smaller businesses or startups, while others prefer to lend to more established firms. Some banks may not even be on solid ground themselves. One easy way to assess a bank's capacity to loan is to check its "Texas Ratio," which is one measure of a bank's financial strength and sometimes is an indicator of banks that may fail. A Texas Ratio score above 150 is an indication of potential trouble.
2. Prepare an Executive Summary - This is a brief one or two page overview of your loan request. It determines if the bank has any interest in lending you funds before you spin your wheels for hours in front of the loan officer. You may want to end the document with your phone number so that the banker can call you back for an appointment or discussion.
3. Have a Complete Loan Package - If you have dazzled the bank officer sufficiently to obtain an appointment with him, then it's time to prepare your "big guns" - the formal loan request. While each loan program and each bank may have their own specific forms to complete, much of the information they ask for will be the same. The following list is typical of the items that will be required for any business loan application: Resumes & Personal Background on Principals and Managers, Business Plan, Personal Credit Reports, Business Credit Reports, Income Tax Returns, Financial Statements, Bank Statements, List of Collateral Offered, Legal Documents such as leases, licenses, corporate formation documents, articles of incorporation, franchise agreements, etc
4. Demonstrate Industry Trends - Provide information about positive growth trends in your industry, especially in terms of macroeconomic trends. These details will help the lender understand the potential for success and growth. The bank may not know about your industry, so the more you can tell them, the better.
5. Prepare, Prepare, Prepare - Rehearse, Rehearse, Rehearse - When a banker asks a question about your business, it should not be the first time you've thought of the answer. Having a strong, well-rehearsed response to anticipated questions will demonstrate that you have done your homework and have a thorough understanding of the situation. The questions are really pretty basic and to be expected: How much money do you need? What are you going to do with it? When will you repay? What will you do if you don't get the loan?
6. Prove Your Credit Worthiness - When discussing a potential loan, don't be afraid to discuss the risk with your bank. Every business has risk, and if you do not talk about it, the bank will assume that you have not taken it into account. A bank wants to be assured that you know your business well enough to anticipate its upsides and downsides. If you can't predict a good surprise, why should they trust you to account for the bad surprises? Lenders will be impressed that you have anticipated negative events. We can all make the numbers look good, but that is not the objective of the lender - he wants to see that the borrower will repay, even when things don't go as planned.
7. Be Prepared to Apply To Multiple Sources - No matter how much preparation you may do, sometimes things might not go your way. Even if you're turned down, thank the lender for the time spent reviewing your application. Never act resentful. The lender is likely to have considered the application in a highly professional, objective manner. Don't take it personally. Remember that, if your business is a success, there'll be future applications to consider. Don't burn your bridges. Talk with the lender about the reason for the rejection and how you can address each to improve future applications. Remember that you have other options. There are plenty of banks and other funding sources.
Visit the Performance Advisors website for articles such as Business Plan Writing Tips, Commercial Loan Options When The Bank Says No, Small Business Loan Money, Start Up Loans for Entrepreneurs With Bad Credit and others that can help you when seeking a business loan. Of course Performance Advisors is here to help you if you need assistance.
Terry Peltz, Director
Performance Advisors LLC
P O Box 26278
Phoenix, Arizona 85068

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